Court is next battle ground for pension reforms

Posted
Thursday, September 27, 2012 1:09 pm

John Hazen-White Jr.

When the General Assembly overwhelmingly passed pension reform for state workers, teachers and a portion of municipal workers covered under the state plan in a special session last fall, it was viewed as a clear rout of labor and a “new day” for Rhode Island. In the immediate aftermath, the state’s labor leadership was viewed as being out of touch with public opinion and slow to react to the push for reform led by General Treasurer Gina Raimondo. Nationally, Rhode Island was hailed as a state willing to confront its public employee unions and free itself from a crushing taxpayer obligated pension burden. Focus then shifted, and continues, to reforming seriously underfunded local plans not covered by the state.

But Rhode Island’s public employee unions haven’t given up the fight to reverse the state’s historic pension reform, and they’re waging a continuing battle on two fronts: in the legislature and in the courts. And far from a being done deal, and even as current state workers are being introduced to TIAA-CREF, the hired financial services plan that will manage the new 401k aspect of state workers’ retirement, unions are working hard to kill pension reform.

It is possible that the state could suffer a sudden reversal before the year is out. In fact, that could happen in Superior Court by the end of next month. In Superior Court the unions are suing the state over breach of implied contract, arguing that the statutes passed in the past by the General Assembly setting forth the terms and conditions of pension obligations binds the state to the terms. If legally upheld, that would make pension reform changes illegal.

The judge hearing the case, Sarah Taft-Carter, previously ruled on the side of the unions – and this was in a different case that went back to pension changes made during the Carcieri administration. With a complete overhaul of the system now being the basis of the unions’ lawsuit, the issues remain much the same but the stakes are much higher.

Taft-Carter was of the opinion that statues regarding pensions do carry an implied contract – she cited other court opinions (and one by the RI Supreme Court) that support that argument. These opinions assert that a statute need not explicitly state a contractual obligation for one to be inherently present.

In its argument to be heard on Oct. 30th the state disagrees, claiming that a statute is not, in fact, a contract nor is a contractual obligation inherent in the nature of a statute. A statute, being a law, can be changed at the will of the legislature at any point in time. The state, in its brief, cites a 1997 case before the RI Supreme Court in which the court’s decision supports the state’s argument.

All eyes will be on Judge Taft-Carter right after Halloween. Should she follow her line of reasoning and strike down the pension law, the state will obviously appeal, and probably all the way to the U.S. Supreme Court if need be. Should the unions lose the first round, they will also appeal to a higher court. The problem is what happens to the reform measures now being put in place under such undecided circumstances – will the reforms have to be placed in suspension? If so, the state could be set back on its heels with the financial consequences and all of its projected savings out the window. Would COLAs, the major cost savings of the reform, have to be re-instituted and lost payments made up? Might the state be obligated to set aside the money it is saving to meet a future payback?

Gina Raimondo has been asked more than once about what happens if the state loses the legal challenge and she has always positioned her answer by stating first that she does not think that will happen because the strongest legal arguments support the state’s position. But if it does, then she acknowledges that the costs to the state will be severe and the state’s fiscal survival will again be a major issue. Rhode Island should also not forget that in Wisconsin, where a divisive battle ensued over Governor Scott Walker’s successful attempt to weaken the power of public employee unions, the outcome remains in legal limbo.

On the other front, in the realm of politics, the unions are using this election to punish Democrats, and there were a lot of them, who voted for pension reform. But they’re being selective about that. Already, in the primary, several pro-reform Democrats, like Woonsocket’s Jon Brien, lost their seats to opponents who enjoyed union backing. We can also expect a union push to downsize or even scuttle key parts of the legislation through new bills being introduced in the next session come January, just as there were last spring.